How Would You Vote On Pressing Tesla Issues For The 2024 Annual Meeting?

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The Tesla, Inc. 2024 Annual Meeting is scheduled to be held on Thursday, June 13, 2024. If you are a Tesla shareholder, you’ve been invited to vote on Tesla issues and board members. I’m a small Tesla shareholder — under 500 shares — and I was invited to vote. The opportunity to chime in has not been more important, with the shifting company directives and a board that nearly always supports its mercurial CEO Elon Musk.

Then again, Elon Musk is Tesla’s largest shareholder, owning around 20.5% of the company’s total outstanding stock in May 2024. Consequently, his share ownership is far larger than that of other individual and institutional shareholders. That means that individual shareholders may not be able to wield any significant sway. A gestalt of discontent, however, could bring about some surprising results.

It is important to make visible what’s at stake for a company that has changed the direction of personal transportation, yet which seems to be veering away from its original mission statement. Let’s look at the Tesla issues on the ballot and determine what’s at stake — not only for shareholders, but for the company as a whole. Each Tesla issue for which shareholders can vote For or Against is in bold, and commentary follows.

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A voting right is the right of a shareholder of a corporation to vote on matters of corporate policy. The number of votes a shareholder has corresponds to the number of shares they own. Thus, somebody owning more than 50% of a company’s shares has a majority of the vote and is said to have a controlling interest in the firm.

We live in a chaotic universe that, in many ways, is completely unpredictable. Yet, within the chaos, a very small change can produce large differences in a later state. That has been the effect of Elon Musk on personal transportation — Musk has revolutionized the entire auto industry. Yet several disconcerting factors that emerge directly from Musk’s leadership style have led the company to this uncertain moment in time. No longer is the company necessarily on a trajectory to patterns of rising success.

Tesla offers the following statement to shareholders to guide them in their voting choices.

“We advise Tesla shareholders to vote with management recommendations.”

Should shareholders agree with the Tesla management recommendations? Let’s see.

The first section of voting looks to the board members, called “Class II Director.” In large, publicly held companies, shareholders exert the most control by electing the company’s directors. Of the 8 Tesla board members, 6 are independent directors, while Elon and Kimbal Musk are not considered independent directors. Only the independent directors participate in the 4 governance committees.

Election of Class II Director to serve for a three-year term expiring in 2027: James Murdoch

Murdoch was chief executive officer of 21st Century Fox and is the son of media magnate Rupert Murdoch. In 2021, proxy advisory firm Institutional Shareholder Services (ISS) recommended that Tesla not re-elect directors James Murdoch because the board approved excessive compensation packages to non-executive board members.

Election of Class II Director to serve for a three-year term expiring in 2027: Kimbal Musk

A passionate food activist, Kimbal Musk is the CEO’s brother. On January 30, 2024, the Delaware Court of Chancery struck down Tesla CEO Elon Musk’s $55 billion performance-based stock option package, ruling that Tesla’s directors did not satisfy the stringent “entire fairness” standard in approving his compensation. One reason was the strong ties between Musk and members of the board (like one’s brother), which was determined to render them beholden to his decision-making and compromised their ability to participate in meaningful negotiation.

A Tesla proposal to approve executive compensation on a non-binding advisory basis.

A Tesla stockholder sued Tesla’s board of directors to rescind a performance-based stock option grant awarded to Tesla’s CEO. A recent article in Reuters comments that the re-vote demonstrates the tension for Tesla, “which is grappling with weak demand as well as a reputational hit to Musk from his political leanings and approval of an antisemitic conspiracy theory last year.” The board’s special committee, which was formed to insulate the process of setting the pay from allegations of Musk’s influence, said it cannot predict if its “novel” approach of getting a re-approval would be proper under Delaware law.

A Tesla proposal to approve the redomestication of Tesla from Delaware to Texas by conversion.

The original Musk executive compensation pay package negotiations were found by Judge McCormick to have been heavily influenced by Musk, who after the ruling tweeted his dismay and polled X users. He wanted to determine if they thought the company should reincorporate in Texas: 87.1% of 1.1 million respondents voted yes.

Should Tesla change its state of incorporation to Texas, home of its physical headquarters?

— Elon Musk (@elonmusk) January 31, 2024

SpaceX, a privately held company, has already switched where it is incorporated from Delaware to Texas.

A Tesla proposal to ratify the 100% performance-based stock option award to Elon Musk that was proposed to and approved by our stockholders in 2018.

Tesla Chair Robyn Denholm criticized the Delaware Chancery Court’s January decision, writing in the proxy that it had effectively second-guessed shareholders who approved Musk’s performance-based award in 2018. In her Letter to Stockholders, Denholm noted that Texas has become the company’s business home. Chief Judge Kathaleen St. J. McCormick described the company’s directors as “supine servants of an overweening master” and said they hadn’t looked out for the best interests of investors.

A Tesla proposal to ratify the appointment of PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm for the fiscal year ending December 31, 2024.

As a public accounting firm, PwC and its partners, employees, third-party contractors and their immediate family members must be independent of PwC’s audit clients, including their affiliates, to comply with applicable independence regulations. This includes being personally financially independent of PwC’s audit clients, including their affiliates.

A stockholder proposal regarding reduction of director terms to one year, if properly presented.

Industry consensus seems to indicate that one-year terms can be too short while more than three years can be too long. Then again, boards that do not continually recruit for and cultivate new leaders are at a significant disadvantage. Class I directors at the Annual Meeting serve on Tesla’s Board of Directors for a term of three years or until their respective successors are duly elected and qualified. Arthur Levitt, former chair of the Securities and Exchange Commission, said, “In my view, it’s best for the investor if the entire board is elected once a year. Without annual election of each director shareholders have far less control over who represents them.”

A stockholder proposal regarding simple majority voting provisions in our governing documents, if properly presented.

A simple majority vote is a voting system where the “winning” option is awarded by a majority vote. For example, if the total votes cast amounts to 100, 51 votes would constitute a majority. This voting system is common among government bodies, corporate boards, nonprofit organizations, professional associations, and more. In other words, receiving “half plus one” votes determines the winner.

A stockholder proposal regarding annual reporting on anti-harassment and discrimination efforts, if properly presented.

Shareholders request the Board of Directors oversee the preparation of an annual public report describing and quantifying the effectiveness and outcomes of Tesla’s efforts to prevent harassment and discrimination against its protected classes of employees. There have been numerous serious allegations of racial or sexual harassment and discrimination at Tesla.

A stockholder proposal regarding adoption of a freedom of association and collective bargaining policy, if properly presented.

Freedom of association and collective bargaining are fundamental human rights protected by international standards including the Fundamental Principles, United Nation’s Guiding Principles on Business and Human Rights, and the United Nation’s Universal Declaration of Human Rights. According to the International Labor Organization, “Freedom of association refers to the right of workers … to create and join organizations of their choice freely and without fear of reprisal or interference.”

A stockholder proposal regarding reporting on effects and risks associated with electromagnetic radiation and wireless technologies, if properly presented.

Over the past 27 years, growing peer reviewed published scientific evidence links RF radiation and other non-ionizing electromagnetic field (EMF) exposure to a range of harmful effects at legally allowed levels including cancer, memory damage, impacts on brain development, the endocrine system, thyroid function, reproduction, and DNA/genetic damage. Numerous scientists conclude that the WHO’s International Agency for Research on Cancer classification of radiofrequency radiation or RF should be at least a probable, if not a proven, human carcinogen. Researchers have also documented harm to flora and fauna.

A stockholder proposal regarding adopting targets and reporting on metrics to assess the feasibility of integrating sustainability metrics into senior executive compensation plans, if properly presented.

This proposal asks that Tesla enact mandatory human rights and environmental due diligence policies that are linked to senior executives’ compensation packages to incentivize timely and systemic improvements regarding human rights and climate change. Demands reach beyond financial targets and recognize the need for companies to prioritize environmental, social, and governance policies and practices to sustainably achieve long-term goals while avoiding exposure to regulatory, legal, and reputational risks.

A stockholder proposal regarding committing to a moratorium on sourcing minerals from deep sea mining, if properly presented.

The deep sea contains many of the planet’s intact ecosystems and plays a crucial role in regulating the climate. Studies indicate that mining this underexplored and complex area for battery-related minerals will create irreversible habitat and ecosystem loss and could permanently destroy invaluable carbon storage. Shareholders request that Tesla commit to a moratorium on sourcing minerals from deep sea mining, consistent with the principles announced in the Business Statement Supporting a Moratorium on Deep Sea Mining. If Tesla cannot so commit, shareholders request that the Board disclose its rationale and assess the Company’s anticipated need for deep sea materials.

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